Chapter 2 main post: How the Other Half Finances

Aside from the "bookend" chapters (now there's an odd metaphor), this book is really a series of perspectives on microfinance: the historian's perspective, the microfinance manager's perspective, the economist's perspective, and so on. The first perspective, in chapter 2 (.doc .pdf), is that of poor clients. To borrow the title of Stuart Rutherford's great book, it is about the poor and their money.Aware of the potential presumptuousness of a white American seeing the world through the eyes of billions of poor people, I begin by inventorying how I use financial services, and inviting you to do the same. I then use this as a point of departure to talk about how the financial challenges and strategies of the poor compare and contrast with those of the rich, whom I define to include the materially comfortable global middle class. I argue that poor people want financial services for the same broad reasons as rich people: not only investing (in microenterprises), but also transferring money, managing consumption, attaining ownership of houses and other assets. But the financial challenges for poor households are qualitatively tougher because most poor people do not have jobs. They tend to diversify across several economic activities, often deliberately refraining from investing too much in any one. In general, because of the unpredictability of their financial circumstances, poor people actually need financial services such as savings, credit, and insurance more than the rich--but can access them less.The chapter closes with a survey of the role of financial systems in economic development, suggesting that the greatest contribution of finance to poverty reduction may lie in supporting the growth of formal, job-creating enterprises.Do these ideas make sense to you? What seems wrong? Post comments on chapter 2 as comments on this blog entry.Thanks to Mai Pham and Anna Rain for edits on earlier drafts.